Cash & Liquidity ManagementCash ManagementPracticeSpreadsheet Risk for Corporate Treasurers

Spreadsheet Risk for Corporate Treasurers

As with anyone working in a complex data environment, today’s corporate treasurers deals with a mass of different information across multiple platforms, applications and tools. Treasurers need the flexibility of personal spreadsheets in order to aggregate and analyse this information, but don’t always have the time to put regular checks and balances in place to ensure spreadsheet accuracy. For management, this world of unstructured financial data may be tomorrow’s negative headline.

Recent research undertaken for ClusterSeven shows that this is a widespread problem, and that organisations are systemically failing to properly control the way in which spreadsheets are being used and managed.

Over the past few years, high-profile cases have brought spreadsheet usage to the forefront of organisations’ risk management procedures, but unfortunately this is not being converted into solutions for end-users. The first time many organisations know that they are at risk is often when a serious financial error has arisen.

A Changing Landscape

The problem is that the world in which treasurers operate is constantly changing. Take the recent financial crisis, for example. Organisations found that traditional channels for raising funds quickly became severely restricted. This led to the development of new lending instrument arrangements as widely varied as the Troubled Asset Relief Program (TARP) in the US and asset-based lending in the UK.

However, treasury management systems (TMS) were not developed with these new requirements in mind, nor was there an off-the-shelf application designed to manage each new and creative financial instrument. The only logical step was to use one or more spreadsheets to record millions – or even trillions – of dollars’-worth of transactions and associated repayments and risk.

Spreadsheets therefore play a vital role in managing treasury functions that are not yet included in core TMS, which are always slightly behind the business curve. Beyond the specific needs of new instruments, treasurers will always need a tool that manages extra data or applications around the outside of the TMS.

Yet as soon as data is saved in a spreadsheet, it presents another version of the truth. Treasurers then have some data in the TMS and some in spreadsheets. In order to present a unified picture to the CFO, they will need to combine that data at some stage.

Because they can’t push data from the spreadsheet to the TMS, they are often then in a situation where they are downloading data from their TMS into yet another spreadsheet. No matter how much money is spent on a TMS, if a final summation report based on aggregated data is presented on a standalone spreadsheet, then the risk of data quality and consistency is introduced.

Potential for Error

So what can go wrong? Our research found that that 47.2% of users made between one and four errors on their spreadsheets, while 11.6% made between five and 10 errors. A further 6.6% of respondents admitted to making more than 11 errors following the construction of their spreadsheets. It’s clear that the prospects for serious errors occurring within spreadsheets are now very likely, with over 65% of interviewees admitting to making mistakes.

More importantly, while your spreadsheets may be ‘good’ and 100% accurate today, the reality is that even the best spreadsheets can go wrong if someone tweaks a figure or accidentally cuts and pastes over a key formula. And doing nothing can in itself introduce risk: for example, if a foreign exchange (FX) rate is not updated or a live data feed is overridden for some reason. On day one there probably won’t be too much of a differential, but if the error is not noticed for three months then it can become significant. Already wafer-thin margins can be all but obliterated and liquidity reports can be shown to be completely inaccurate.

And it’s not just reporting that can be affected by rogue spreadsheets. Now that the economy is in recovery mode, the finance team will come under increasing pressure from the business to introduce new products in order to win market share. One of the functions of the treasurer is to price products (such as mortgages and finance/leasing deals) accurately so that risk and returns are properly managed.

Calculating Risk Accurately

Unfortunately, the fact that new products need to be innovative and are not already supported by TMS or other core applications means that treasurers often use spreadsheets to calculate risk, discounts and pricing for new offers. One rogue number can wipe out delicately balanced returns, limiting an organisation’s ability to return to full-scale financial health. Even when spreadsheets are completed accurately, time moves on and people leave the business without necessarily explaining to colleagues how a spreadsheet works or where data came from to populate it. The problem is not the spreadsheet per se, but how it is managed and monitored.

However, in our experience, very few organisations take a proactive view of spreadsheet usage across the organisation. According to our research, just over one in two (56.5%) of spreadsheet users have never received formal training on the spreadsheet package they use. Almost three quarters of respondents (72%) admitted that no internal department checks their spreadsheets for accuracy. Only 12.9% said that the internal audit department reviews their spreadsheets, while a mere 1.1% receive checks from their risk department.

The only way to ensure the 100% synchronisation of core financial systems and the business would be to make the world stop for five years – which will never happen. Indeed, new regulation, changes in financial markets and company structures together with product innovation mean that the world gets more uncertain rather than less. The reality is that spreadsheets are, and will continue to be, complementary to core applications such as TMS. They play a vital role in filling the ever-present gap between the built-in functionality of such applications and the changing needs of the business.


So what can be done? Treasurers should take a lead on the introduction of new measures such as providing automated solutions to give clear visibility of business-critical spreadsheet activity and replace slow unreliable manual checks. In combination with end-user training, this will ensure that spreadsheets are used reliably and efficiently where they are necessary. Just as importantly, it will ensure that the IT road map for improving the treasury systems is clearly focused on the most important business requirements – as everyone can now see what is really happening in their world of unstructured financial data.

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